Most raisins in the U.S. are produced in California. Raisins come from grapes, in a fairly simple process: grapes grow on vines; at harvest time, workers cut the bunches of grapes down; they spread them out in the sun for a couple of weeks until the grapes shrivel up and become raisins; the raisins are then packed into boxes and sold to consumers. But here’s the thing: California raisin growers have a cartel. And it is a legal cartel, based on a law passed in 1937 during the Great Depression. That law says that raisin growers are exempt from U.S. anti-trust law. So here is what the raisin growers do. They harvest their raisins. Then they have a big meeting of all the growers (called the Raisin Administrative Committee). At this meeting they decide how much of their raisin crop they are actually going to sell. Usually they decide that they will not sell their entire crop – in some years they decide that they will only sell half of it. Whatever they don’t sell goes into storage as a Raisin Reserve. Explain why the raisin cartel decides to sell less than the entire crop of raisins. In particular, explain how this decision affects the price and the profit of raisin growers. The raisin cartel is legal. Explain whether the raisin cartel is likely to be successful in its efforts to increase the profits of raisin growers.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Most raisins in the U.S. are produced in California. Raisins come from grapes, in a fairly simple process: grapes grow on vines; at harvest time, workers cut the bunches of grapes down; they spread them out in the sun for a couple of weeks until the grapes shrivel up and become raisins; the raisins are then packed into boxes and sold to consumers.

But here’s the thing: California raisin growers have a cartel. And it is a legal cartel, based on a law passed in 1937 during the Great Depression. That law says that raisin growers are exempt from U.S. anti-trust law.

So here is what the raisin growers do. They harvest their raisins. Then they have a big meeting of all the growers (called the Raisin Administrative Committee). At this meeting they decide how much of their raisin crop they are actually going to sell. Usually they decide that they will not sell their entire crop – in some years they decide that they will only sell half of it. Whatever they don’t sell goes into storage as a Raisin Reserve.

Explain why the raisin cartel decides to sell less than the entire crop of raisins. In particular, explain how this decision affects the price and the profit of raisin growers.

The raisin cartel is legal. Explain whether the raisin cartel is likely to be successful in its efforts to increase the profits of raisin growers.

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